26 Jan 2012
By Bill McIntosh
Fining David Einhorn and his firm Greenlight Capital £7.2 million for market abuse in the selling of shares in Punch Taverns just days ahead of a 2009 rights issue highlights anomalies in US and UK market regulations. It also bears scrutiny on several other levels.
For a start, the conviction gives the Financial Services Authority a prominent scalp in its uneven campaign to root out insider dealing. It should be noted that Einhorn’s personal fine of £3.6 million is nearly five times more than the £750,000 the FSA fined former GLG star trader Philippe Jabre for market abuse in 2006.
Yet in this case the evidence against Einhorn is somwhat less conclusive. Readers with a long memory will recall the very explicit transcripts of Jabre’s phone calls with Goldman Sachs. In them, the investment bank disclosed to the trader that he had been ‘taken over the wall’ (i.e., given confidential information) with the provision of information about a forthcoming securities issue by a Japanese financial group.
The case with Einhorn seems less clear cut. He refused to sign a non disclosure agreement and specifically told Punch’s broker at Bank of America Merrill Lynch he did not want to be “wall crossed” – that is, given confidential information. It seems that BAML nonetheless provided such market sensitive information. The result is the conviction and fines after Greenlight sold part of its stake, making £5.8 million more than what the shares would have fetched post news of the rights issue.
Lawyers say that the FSA’s admonition that Einhorn should have known better throws up an important difference between US and UK law. On Wall Street, insider information is generally regarded as information used in breach of a legal duty to keep quiet. In the UK, the FSA has campaigned over a number of years to have the wider charge of market abuse apply to any trader acting on price-moving information that has restricted access. The distinction is an important one for both intermediaries and fund managers.
There is also a broader point. It seems that in the UK, intermediaries have less onerous responsibilities than fund managers in the handling of price sensitive company information. Yet it is precisely these intermediaries, mainly investment banks, which manage the deal flow. Given that the FSA’s own data estimates that over 30% of corporate transactions feature suspicious trading activity before becoming public, it appears obvious where a great deal of market abuse is originating. How the FSA grapples with this institutional abuse remains an open question.
Fining David Einhorn and his firm Greenlight Capital £7.2 million for market abuse in the selling of shares in Punch Taverns just days ahead of a 2009 rights issue highlights anomalies in US and UK market regulations. It also bears scrutiny on several other levels.
For a start, the conviction gives the Financial Services Authority a prominent scalp in its uneven campaign to root out insider dealing. It should be noted that Einhorn’s personal fine of £3.6 million is nearly five times more than the £750,000 the FSA fined former GLG star trader Philippe Jabre for market abuse in 2006.
Yet in this case the evidence against Einhorn is somwhat less conclusive. Readers with a long memory will recall the very explicit transcripts of Jabre’s phone calls with Goldman Sachs. In them, the investment bank disclosed to the trader that he had been ‘taken over the wall’ (i.e., given confidential information) with the provision of information about a forthcoming securities issue by a Japanese financial group.
The case with Einhorn seems less clear cut. He refused to sign a non disclosure agreement and specifically told Punch’s broker at Bank of America Merrill Lynch he did not want to be “wall crossed” – that is, given confidential information. It seems that BAML nonetheless provided such market sensitive information. The result is the conviction and fines after Greenlight sold part of its stake, making £5.8 million more than what the shares would have fetched post news of the rights issue.
Lawyers say that the FSA’s admonition that Einhorn should have known better throws up an important difference between US and UK law. On Wall Street, insider information is generally regarded as information used in breach of a legal duty to keep quiet. In the UK, the FSA has campaigned over a number of years to have the wider charge of market abuse apply to any trader acting on price-moving information that has restricted access. The distinction is an important one for both intermediaries and fund managers.
There is also a broader point. It seems that in the UK, intermediaries have less onerous responsibilities than fund managers in the handling of price sensitive company information. Yet it is precisely these intermediaries, mainly investment banks, which manage the deal flow. Given that the FSA’s own data estimates that over 30% of corporate transactions feature suspicious trading activity before becoming public, it appears obvious where a great deal of market abuse is originating. How the FSA grapples with this institutional abuse remains an open question.
